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3b-Accounting VS External Audit
Accounting and finance
Kyambogo University
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Definition of Accounting: Accounting refers to the process of capturing, classifying, summarizing, analyzing and presenting the financial transactions, records, statements, profitability and financial position of an organization or entity. Accounting is the specialized language of business.
Accounting work for an organization is done usually by its own employees. Accounting is carried out almost continuously. Accounting is categorized in various branches like cost accounting, management accounting, financial accounting, etc.
What is Auditing?
Definition of Auditing: Auditing refers to the critical examination of the financial records or statements of a business or an organization. It is obligatory for all separate legal entities. Auditing is carried out after the final preparation of the financial statements and accounts.
Auditing involves carrying out the inspection and statutory audit of the financial statements, and giving a fair and unbiased opinion on whether the financial statements and records provide a true and fair reflection of the actual financial position of the firm. The auditors, usually external, carry out the task of auditing under the provisions of the applicable laws on behalf of shareholders or regulators. The scope of auditing work is determined by the applicable laws.
Auditing has two main categories viz. internal audit and external audit. Internal audit is conducted by an internal auditor, usually an employee of the organization. External audit is conducted by an external auditor, appointed by the shareholders
Similarities between Accounting and Auditing:
Many of the basic processes of both accounting and auditing are similar. Both need a thorough knowledge of accounting basics and principles. Both are generally done by the persons with an accounting degree. Both use essential procedures and techniques of book-keeping, computation and analysis. Both accounting and auditing strive to ensure that the financial statements and records provide a fair reflection of the actual financial position of an organization.
Difference between Accounting and Auditing:
Definition:
Accounting is keeping records of the financial transactions and preparing financial statements; but auditing is critical examination of the financial statements to give an opinion on their fairness. Timing: Accounting is carried out on continuous basis with daily recording of financial transactions; while auditing is basically a periodic process and carried out after the preparation of final accounts and financial statements, usually on yearly basis.
Objective:
Objective of accounting is to determine the financial position, profitability and performance; while objective of auditing is to add credibility to the financial statements and reports of the company. Legal Status:
Accounting is governed by Accounting Standards with some degree of discretion; but auditing is governed by Standards on Auditing and does not provide much flexibility. Performed by:
accounting is performed by accountants; while auditing is performed generally by qualified auditors. Status:
Accounting is usually carried out by an internal employee of the company; but auditing is carried out by an external person or independent agency.
Appointment:
Accountant is appointed by the management of the company; while the auditor is appointed by the shareholders of the company, or a regulator. Qualification:
Any specific qualification is not compulsory for an accountant; but some specific qualification is compulsory for an auditor.
Remuneration Type:
Accounting is carried out by a company employee who gets a salary; while a specific auditing fee is paid to the auditor. Remuneration Fixation:
Accountant’s remuneration, i., salary is fixed by the management; while auditor’s fee is fixed by the shareholders. Scope Determination:
The scope of accounting is determined by the management of the company; while the scope of auditing is determined by the relevant laws or regulations. Necessity:
Accounting is necessary for all organizations in the day-to-day or routine operations; while auditing is not necessary in the day-to-day operations. Deliverables:
Accounting prepares financial statements e. Income Statement or P/L, Balance Sheet, Cash Flow Statement, etc.; while auditing provides Audit Report.
Report Submission:
Accounts are submitted to the management of the organization; while audit report is submitted to the shareholders. Guidance:
Accountants may make suggestions for the improvement of accounting and related activities to the management; whereas auditor usually does not make suggestions, except in some cases with specific requirements, e. improvement in internal controls.
However, they also complement each other in some respects. Accountants can learn from professional knowledge of an auditor; and implement the best practices in their accounting work. Auditor may get help from the accountants for a thorough knowledge of the accounting system of an organization and technical aspects of the business. If any fraud or error remains undetected; the auditor will be held responsible solely.
3b-Accounting VS External Audit
Course: Accounting and finance
University: Kyambogo University
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